Expect cow prices to lift 25-50 per cent post-drought

Simon-Quilty1

Market analyst Simon Quilty.

The recent ‘Mapping Australia’s Livestock Future’ workshops hosted by Northern Tablelands Local Land Services and presented by market analyst Simon Quilty provided excellent insight into the forecasts for livestock prices in the coming years.

The forecast made by Simon Quilty when he visited the region in July last year was that the low in Australian livestock prices would be October 2018.

In reality the low was 450 c/kg carcase weight in August and the second low was 480 c/kg in October – it was the rain in October across the Eastern Seaboard that lifted prices.

Simon is confident this will be the low for many years to come. The strong global prices that were talked of last year as part of the Super Demand Cycle were the reason these prices did not fall any lower.

Simon highlighted that he thought Australia’s livestock industry was about to move into a second cattle cycle, back to back with the last, whereby in six months Australia is likely to see cattle values approximately 12-16 % higher with or without rain.

He expects to see the Eastern Young Cattle Indicator (EYCI) value in the 570-600 ac/kg price range by June 2019.

One of the key consequences of drought is a fall in the cattle herd size. NSW producers are continuing to reduce the female herd signalling on going liquidation.

Simon is assuming a two-year drought in his analysis mainly because that is the average length of a drought based on past history.

“I expect that by mid-2020 the Australian herd would have fallen to 26.2 million head or a fall of 7% based on this year’s estimate of 28.15 million head. This would put the herd at a 30 year low,” said Simon.

Simon also addressed the key issue of what cow prices are likely to do once the drought breaks. He highlighted that in the last drought of 2013-14, when rain eventually came, cow prices doubled in value within five months.

He believes a cow price increase of 25-50% is possible and farmers can expect a similar pattern of price spikes in the first five months following the current drought.

“The lower the herd size the bigger the rebound in cattle prices. When the drought breaks and the herd cycle moves into its next phase cattle prices could potentially reach 800 ac/kg by early 2021,” said Simon. (The peak of the last cattle cycle was October 2016 at 725 ac/kg).

Strong global prices are the key to strong Australian cattle prices in the next four years and the following factors will drive global beef prices:

  • Tighter cumulative total cattle numbers in key demand countries such as Japan, Korea, China, US and Indonesia
  • Tighter cumulative total cattle numbers in key foot and mouth disease free countries such as Australia, New Zealand and the US
  • Competing meats like chicken not impacting beef and sheep meat prices for many years to come
  • The impact of African Swine Fever in China that will see a global tightening of proteins as China liquidates its pig herd in an effort to bring this disease under control.

Simon’s views on lamb were equally optimistic over the next four years highlighting that many of the same market forces that impact global beef prices are also influencing lamb prices.

-Local Land Services

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